The gap between the economy and sentiment

Last week’s call by the ECRI for a recession all but sealed in investor’s minds that we are on track for a fresh recession.  This recession talk is certainly reflect in the consumer sentiment data that indicates a majority of people think we are already in, or never came out of, a recession.  The funny thing is that the economic data, while weak, continues to point towards slow, sluggish growth, not an outright recession.

The national ISM Manufacturing Index came out today showing the same thing:  slow growth, but no recession.  Eddy Elfenbein notes that it takes a much lower reading to guarantee a recession is ongoing.  The graph below shows that the stock market has given up its gains while the major economic series have flatlined.

SPX ISM The gap between the economy and sentiment

Source:  Capital Spectator

The ISM numbers not the only economic series coming in better than expected.  Bespoke Investment notes that 17 out of the last 21 economic reports came in better than expected.  Also today Joe Weisenthal writes:

These things, cars, construction are necessary parts of the economy, even if things are weak, and we’re seeing signs (today’s data really bears it out) that because they’re so beaten down, they can rise even in a mediocre economy. Today we can got that confirmation.

While a recession may be coming, for now the economy is mediocre.  On the other hand sentiment towards the economy is at generation lows.  In one way or another the gap between reality and sentiment will close.  The only question is how.

Items worth noting:

On the big disparity between the economy and consumer sentiment.  (A Dash of Insight)

Still ways away from a recession according to the ISM.  (Crossing Wall Street)

Is the stock market all that out of whack compared to the ISM?  (Capital Spectator)

Car sales and construction spending are pointing up.  (Money Game)

A breakdown of the ISM numbers.  (EconomPic Data)

Multi-decade lows in consumer sentiment.  (Reuters)

A recession review.  (Abnormal Returns)

“Today’s ISM = 51.6. Since 1948, it printed between 50 and 53 128 times yet only 39 were official NBER recessions.”  (@eddyelfenbein)

“Since last Monday, 17 out of 21 economic reports have been better than expected. S&P 500 is down 3.5% over this time period.”  (@bespokeinvest)

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